G.R. No.
L-21549 October 22, 1924 Said clauses are as follows:
TEODORO VEGA, plaintiff-appellee,
vs.
THE SAN CARLOS MILLING CO., LTD., defendant-appellant.
Fisher, Dewitt, Perkins, & Brady, John R. McFie, Jr., Jesus Trinidad, and Powell & Hill
for appellant.
R. Nolan and Feria & La O for appellee.
ROMUALDEZ, J.:
This action is for the recovery of 32,959 kilos of centrifugal sugar, or its value, P6,252,
plus the payment of P500 damages and the costs.
The defendants filed an answer, and set up two special defenses, the first of which is
at the same time a counterclaim.
The Court of First Instance of Occidental Negros that tried the case, rendered
judgment, the dispositive part of which is as follows:
By virtue of these considerations, the court is of opinion that with respect to
the complaint, the plaintiff must be held to have a better right to the
possession of the 32,959 kilos of centrifugal sugar manufactured in the
defendants' central and the latter is sentenced to deliver them to the plaintiff,
and in default, the selling price thereof, amounting to P5,981.06 deposited in
the office of the clerk of the court. Plaintiff's claim for damages is denied,
because it has not been shown that the defendant caused the plaintiff any
damages. Plaintiff is absolved from defendant's counterclaim and declared
not bound to pay the such claimed therein. Plaintiff is also absolved from the
counterclaim of P1,000, for damages, it not having been proved that any
damages were caused and suffered by defendant, since the writ of
attachment issued in this case was legal and proper. Without
pronouncement as to costs.
So ordered.
The defendant company appealed from this judgment, and alleges that the lower
court erred in having held itself with jurisdiction to take cognizance of and render
judgment in the cause; in holding that the defendant was bound to supply cars
gratuitously to the plaintiff for the cane; in not ordering the plaintiff to pay to the
defendant the sum of P2,866 for the cars used by him, with illegal interest on said
sum from the filing of the counterclaim, and the costs, and that said judgment is
contrary to the weight of the evidence and the law.
The first assignment of error is based on clause 23 of the Mill's covenants and clause
14 of the Planter's Covenant as they appear in Exhibit A, which is the same
instrument as Exhibit 1.
23. That it (the Mill — Party of the first part) will submit and all differences
that may arise between the Mill and the Planters to the decision of
arbitrators, two of whom shall be chosen by the Mill and two by the Planters,
who in case of inability to agree shall select a fifth arbitrator, and to respect
and abide by the decision of said arbitrators, or any three of them, as the
case may be.
xxx xxx xxx
14. That they (the Planters--Parties of the second part) will submit any and
all differences that may arise between the parties of the first part and the
parties of the second part of the decision of arbitrators, two of whom shall be
chosen by the said parties of the first part and two by the said party of the
second part, who in case of inability to agree, shall select a fifth arbitrator,
and will respect and abide by the decision of said arbitrators, or any three of
them, as the case may be.
It is an admitted fact that the differences which arose between the parties, and which
are the subject of the present litigation have not been submitted to the arbitration
provided for in the above quoted clauses.
Defendant contends that as such stipulations on arbitration are valid, they constitute a
condition precedent, to which the plaintiff should have resorted before applying to the
courts, as he prematurely did.
The defendant is right in contending that such covenants on arbitration are valid, but
they are not for the reason a bar to judicial action, in view of the way they are
expressed:
An agreement to submit to arbitration, not consummated by an award, is no
bar to suit at law or in equity concerning the subject matter submitted. And
the rule applies both in respect of agreements to submit existing differences
and agreements to submit differences which may arise in the future. (5 C. J.,
42.)
And in view of the terms in which the said covenants on arbitration are expressed, it
cannot be held that in agreeing on this point, the parties proposed to establish the
arbitration as a condition precedent to judicial action, because these clauses quoted
do not create such a condition either expressly or by necessary inference.
Submission as Condition Precedent to Suit. — Clauses in insurance and
other contracts providing for arbitration in case of disagreement are very
similar, and the question whether submission to arbitration is a condition
precedent to a suit upon the contract depends upon the language employed
in each particular stipulation. Where by the same agreement which creates
the liability, the ascertainment of certain facts by arbitrators is expressly
made a condition precedent to a right of action thereon, suit cannot be
 brought until the award is made. But the courts generally will not construe an
arbitration clause as ousting them of their jurisdiction unless such
construction is inevitable, and consequently when the arbitration clause is
not made a condition precedent by express words or necessary implication,
it will be construed as merely collateral to the liability clause, and so no bar
to an action in the courts without an award. (2 R. C. L., 362, 363.)
Neither does not reciprocal covenant No. 7 of said contract Exhibit A expressly or
impliedly establish the arbitration as a condition precedent. Said reciprocal covenant
No. 7 reads:
7. Subject to the provisions as to arbitration, hereinbefore appearing, it is
mutually agreed that the courts of the City of Iloilo shall have jurisdiction of
any and all judicial proceedings that may arise out of the contractual
relations herein between the party of the first and the part is of the second
part.
The expression "subject to the provisions as to arbitration, hereinbefore appearing"
does not declare such to be a condition precedent. This phrase does not read
"subject to the arbitration," but "subject to the provisions as to arbitration hereinbefore
appearing." And, which are these "provisions as to arbitration hereinbefore
appearing?" Undoubtedly clauses 23 and 14 quoted above, which do not make
arbitration a condition precedent.
We find no merit in the first assignment of error.
The second raises the most important question in this controversy, to wit: Whether or
not the defendant was obliged to supply the plaintiff which cars gratuitously for cane.
The Central, of course, bound itself according to the contract exhibit A in clause 3 of
the "Covenant by Mill," as follows:
3. That it will construct and thereafter maintain and operate during the term
of this agreement a steam or motor railway, or both, for plantation use in
transporting sugar cane, sugar and fertilizer, as near the center of the can
ands as to contour of the lands will permit paying due attention to grades
and curves; that it will also construct branch lines at such points as may be
necessary where the present plantations are of such shape that the main
line cannot run approximately through the center of said plantations, free of
charge to the Planters, and will properly equip said railway with locomotives
or motors and cars, and will further construct a branch line from the main
railway line, mill and warehouses to the before mentioned wharf and will
further construct yard accomodations near the sugar mill. All steam
locomotives shall be provided which effective spark arresters. The railway
shall be constructed upon suitable and properly located right-of-way, through
all plantations so as to give, as far as practicable, to each plantations equal
benefit thereof; said right-of-way to b two and one-half meters in width on
either said from the center of track on both main line and switches and
branches.
By this covenant, the defendant, the defendant bound itself to construct branch lines
of the railway at such points on the estate as might be necessary, but said clause No.
3 can hardly be construed to bind the defendant to gratuitously supply the plaintiff
with cars to transport cane from his fields to the branch lines agreed upon on its
estate.
But on March 18, 1916, the defendant company, through its manager Mr. F. J. Bell,
addressed the following communication to the plaintiff:
DEAR SIR: In reply to yours of March 15th.
Yesterday I tried to come out to San Antonio to see you but the
railway was full of cars of San Jose and I could not get by with my
car. I will try again as soon as I finish shipping sugar. The steamer
is expected today.
I had a switch built in the big cut on San Antonio for loading your
cane near the boundary of Santa Cruz. will not this sufficient? We
have no another switch here and I hope you can get along with the
3 you now have.
Some of the planters are now using short switches made of 16-lb.
portable track. These can be placed on the main line at any place
and cars run off into the field and loaded. I think one on
your hacienda would repay you in one season.
The rain record can wait.
Sincerely yours,
SAN CARLOS MILLING CO., LTD. (Sgd.) F.J. BELL
"Manager"
It is suggested to the plaintiff in this letter that he install a 16-lb. rail portable track
switch, to be used in connection with the main line, so the cars may run on it. It is not
suggested that he purchase cars, and the letter implies that the cars mentioned
therein belong to the defendant.
As a result of this suggestion, the plaintiff bought a portable track which cost him
about P10,000, and after the track was laid, the defendant began to use it without
comment or objection from the latter, nor payment of any indemnity for over four
years.
With this letter Exhibit D, and its conduct in regard to the same, the defendant
deliberately and intentionally induced the plaintiff to believe that by the latter
purchasing the said portable track, the defendant would allow the free use of its cars
upon said track, thus inducing the plaintiff to act in reliance on such belief, that is, to
purchase such portable track, as in fact he did and laid it and used it without payment,
the cars belonging to the defendant.
This is an estoppel, and defendant cannot be permitted to gainsay its own acts and
agreement.
The defendant cannot now demand payment of the plaintiff for such use of the cars.
And this is so, not because the fact of having supplied them was an act of pure
liberality, to which having once started it, the defendant was forever bound, which
would be unreasonable, but because the act of providing such cars was, under the
circumstances of the case, of compliance of an obligation to which defendant is
bound on account of having induced the plaintiff to believe, and to act and incur
expenses on the strenght of this belief.
The question of whether or not the plaintiff was under the necessity of first showing a
cooperative spirit and conduct, does not affect the right which he thus acquired of
using the cars in question gratuitously.
We do not find sufficient reason to support the second assignment of error.
The point raised in the third assignment of error is a consequence of the second. If
the plaintiff was entitled, as we have said, to use the cars gratuitously, the defendant
has no right to demand any payment from him for the use of said cars.
The other assignments of error are consequences of the preceding ones.
We find nothing in the record to serve as a legal and sufficient bar to plaintiff's action
against the defendant for the delivery of the sugar in question, or its value. A
discussion as to the retention of this deposit to apply upon what is due by reason
thereof made in the judgment appealed from, is here necessary. The parties do not
raise this question in the present instance. Furthermore, it has not been proven that
the plaintiff owes the defendant anything by reason of such deposit.
The judgment appealed from is hereby affirmed with the costs of this instance against
the appellant. So ordered.
Johnson, Street and Villamor, JJ., concur.
Separate Opinions
AVANCEÑA, J., concurring:
I concur in the majority opinion, but desire to state, however, that my vote on the first
error is based upon the fact that inasmuch as clause 23 of the Mill's Covenants, and
clause 14 of the Planter's Covenants provide that the parties should respect and
abide by the decision of the arbitrators, they bar judicial intervention and
consequently are null and void in accordance with the ruling of this court in the case
of Wahl and Wahl vs. Donaldson, Sims & Co. (2 Phil., 301). Clause 7 of the Mutual
Covenants, naming the Court of First Instance of Iloilo as the one with jurisdiction to
try such cases as might arise from the parties' contractual relations, by the very fact
that it was made subject to the arbitration clauses previously mentioned, does not
render such arbitration merely a condition precedent to judicial action, nor does it
change its scope, as clearly indicated by its wording and the intention of the parties.
Said clause 7 was doubtless added in case it became necessary to resort to the
courts for the purpose of compelling the parties to accept the arbitrator's decision in
accordance with the contract, and not in order to submit anew to the courts what had
already been decided by the arbitrators, whose decision the contracting parties had
bound themselves to abide by and respect.
MALCOLM, J., dissenting:
I join with Mr. Justice Ostrand in his dissent based on the proposition that the
defendant is not bound to furnish cars free of charge for use on the plaintiff's portable
railway tracks, in relation with its corollary, that the letter written by the manager of the
defendant's mill on March 18, 1916, does not estop the defendant from demanding
compensation for the future use of the cars. I dissent also on another ground, which
is, that the parties having formally agreed submit their differences to arbitrators, while
recognizing the jurisdiction of the courts, arbitration has been made a condition
precedent to litigation, and should be held valid and enforceable.
Lamentable, to say the least, is the chaotic condition which exists with reference to
the efficacy of arbitration agreements. While the variety of reasons advanced by the
courts for refusing to compel parties to abide by their arbitration contracts are not
always convincing, and while research discloses that the rules have mounted on
antiquity rather than on reason, yet we presume that, with or without reason, the
general principles must be accepted. A light is, however, breaking through the clouds
of obscurity and courts which formerly showed hostility to arbitration are now looking
upon it with reluctant favor. The possibly inevitable jealousy of the courts toward
anything which deprives them of jurisdiction and the idea which once prevailed that
since there are courts, therefore everybody must go to the courts, is, as Federal
Judge Hough declares in the case of United States Asphalt Refining Co. vs. Trinidad
Lake Petroleum Co. ([1915], 222 Fed., 1006), "A singular view of juridical sanctity."
In the Philippines fortunately, the attitude of the courts toward arbitration agreements
is slowly crystallizing into definite and workable form. The doctrine announced in
Wahl and Wahl vs. Donaldson, Sims & Co. ([1903], 2 Phil., 301), was that a clause in
a contract providing that all matters in dispute shall be referred to arbitrators and to
them alone, is contrary to public policy and cannot oust the courts of jurisdiction. But
even this conservative expression of the doctrine has been modernized by the
subsequent cases of Chang vs. Royal Exchange Assurance Corporation of London
([1907], 8 Phil., 399); Allen vs. Province of Tayabas ([1918], 38 Phil., 356); and Chan
Linte vs. Law Union and Rock Ins. Co. ([1921], 42 Phil., 548). The rule now is that
unless the agreement is such as absolutely to close the doors of the courts against
the parties, which agreement would be void, the courts will look with favor upon such
amicable arrangement and will only with great reluctance interfere to anticipate or
nullify the action of the arbitrator.
The new point of the judiciary in the progressive jurisdiction of Pennsylvania, in
England, and under the Civil Law, is also worthy of our serious consideration. It is the
rule in Pennsylvania that when the persons making an executory contract stipulate in
it that all disputes and differences between them, present or prospective, in reference
to such contract or any sum payable under it, shall be submitted to the arbitrament of
a named individual, or specifically designated persons, they are effectually bound
irrevocaby by that stipulation, and precluded from seeking redress elsewhere until the
arbiter or arbiters agreed upon have rendered an award or otherwise been
discharged. The courts there, however, make distinction between agreements for a
general reference to arbitration and designating a particular individual or tribunal to
arbitrate. The former may be waived or revoked, and is no obstacle to a suit or action
for the same matter; the latter is irrevocable and until the designated arbiter or
arbiters have decided, no right of action arises which can be enforced in law or in
equity. (Snodgrass vs. Gavit [1857], 28 Pa., 221; Commercial Union Assur.
Co. vs. Hocking [1886], 115 Pa., 407; 2 Am St. Rep., 562; Page vs. Vankirk, 1
Brewst. [Pa.], 282; 47 L. R. A. [N. S.], note, pp. 399, 400.)
In England, the view seems now to prevail that a contractual stipulation for a general
arbitration, constitutes a condition precedent to the institution of judicial proceedings
for the enforcement of the contract. (Compagnie de Commerce etc. vs. Hamburg
Amerika etc. [1917], 36 Phil., 590, 635.) Law Watson in Hamlyn vs. Talisker Distillery
([1894], App. Cas., 202), said: "The rule that a reference to arbiters not named cannot
be enforced does not appear to me to rest upon any essential considerations of public
policy. Even if an opposite inference were deducible from the authorities by which it
was established, the rule has been so largely trenched upon by the legislation of the
last 50 years, . . . that I should hesitate to affirm that the policy upon which it was
originally based could now be regarded as of cardinal importance.
Finally, it is within our knowledge that the Spanish civil law wisely contains elaborate
provisions looking to the amicable adjustment of controversies out of court. Litigation
by means of friendly adjusters was formerly well known. The procedure in this kind of
litigation was minutely outlined in the Ley de Enjuiciamiento to Civil. Two articles of
the Civil Code, namely articles 1820 and 1821, were given up to the subject of
arbitration, and expressly confirmed this method of settling differences.
(See Cordoba vs. Conde [1903], 2 Phil., 445.)
Now, with all these legal views to the forefront, let us notice the facts to which they
should be applied. 1awph!l.net
Clause 23 of the Mill's Covenants, clause 14 of the Planter's Covenants, and clause 7
of the Mutual Covenants, read as follows:
23. That it (the Mill — Party of the First Part) will submit any and all
differences that may arise between the Mill and the Planters to the decision
of arbitrators, two of whom shall be chosen by the Mill and two by Planters,
who in case of inability to agree shall select a fifth arbitrator, and to respect
and abide by the decision of said arbitrators, or any three of them, as the
case may be.
xxx xxx xxx
14. That they (the Planters--Parties of the Second Part) will submit any and
all differences that may arise between the parties of the first part and the
parties of the second part to the decision of arbitrators, two of whom shall be
chosen by the said parties of the first part and two by the said party of the
second part, who in case of inability to agree, shall select a fifth arbitrator,
and will respect and abide by the decision of said arbitrators, or any three of
them, as the case may be.
xxx xxx xxx
7. Subject to the provisions as to arbitration, hereinbefore appearing, it is
mutually agreed that the courts of the City of Iloilo shall have jurisdiction of
any all judicial proceedings that may arise out of the contractual relations
herein between the party of the first and the parties of the second part.
It was plainly the solemn purpose of the parties to settle their controversies amicably
if possible before resorting to the courts. They provided for themselves by mutual
consent a method which was speedier and less expensive for all concerned and less
likely to breed that ill-feeling which is often the consequence of hotly contested
litigation. All this was done by the Planters on the one hand and by the Milling
Company on the other, to the end that justice might guide them and possible
differences by quickly adjusted.
It is clear, by paragraph 7 of the Mutual Covenants, that these parties did not intend
that the decision of the arbitrators should prevent resort to the courts, for they
expressly agreed to carry litigation between them to the courts of Iloilo. Acting under
legal rules, even in their most restrictive form, disputes arising out of the contract,
were to be referred to arbitration so that the damages sustained by a breach of the
contract, could be ascertained by specified arbitrators before any right of action
arose; but the matters in dispute were not to be referred to arbitrators and to them
alone, to the utter exclusion of the courts. It is exactly correct to state that the clauses
of the Covenants hereinbefore quoted, were meant as a condition precedent to
litigation, which accordingly should be given effect.
For the two reasons above explained, I vote for reversal.